Why France isn’t angry about China’s brandy tariff

When China announced anti-dumping duties on European brandy, the move was widely interpreted as retaliatory—a direct response to the European Commission’s probe into Chinese electric vehicles. The assumption was simple: Beijing was preparing to escalate. But what followed defied the logic of tit-for-tat retaliation.

Instead of blanket enforcement, China’s Ministry of Commerce granted swift exemptions to major French cognac producers including Hennessy, Martell, and Rémy Martin. Paris, which initially appeared poised to condemn the move, pivoted sharply. French officials welcomed the outcome as “constructive” and “balanced.” What was expected to be a flashpoint in EU-China relations instead became a symbol of selective détente.

This isn’t just a curious twist in trade diplomacy. It reveals a calibrated political maneuver by Beijing—and a deeper strategic accommodation by Paris. And it signals to sovereign wealth funds, trade ministries, and global capital allocators that China’s use of economic tools remains flexible, targeted, and aligned to long-game leverage.

Formally, China maintains that its tariff decision was grounded in legal process—an outcome of a trade investigation launched earlier in the year. Unofficially, the move was widely read as pressure politics in response to EU scrutiny of Chinese EV subsidies.

However, the observed behavior diverged significantly. Rather than apply duties broadly, China invited selected French exporters into confidential pricing negotiations. The result: a minimum export price deal that exempted them from the tariffs entirely.

This softens the blow considerably—not just economically, but symbolically. By limiting exposure to French firms (which dominate the European brandy category), Beijing removed the most politically sensitive friction from the equation while maintaining the façade of regulatory consistency. It’s a classic dual-play: signal strength to domestic audiences while telegraphing strategic flexibility to key trading partners.

This is not the first time French exporters have found themselves buffered from broader Chinese economic pressure. In earlier trade disputes—including the 2013 solar panel and wine standoff—France was frequently treated as an interlocutor rather than a target.

Beijing has long viewed France as a potential counterweight to Brussels’ hawkish instincts. France’s strong bilateral history with China, underpinned by luxury trade, aerospace partnerships, and diplomatic autonomy, makes it a unique vector of influence within the EU. Granting exemptions to Hennessy and its peers is not just economic calculus—it’s diplomatic choreography. Beijing is sending a signal: deal with us directly, and friction can be managed.

For sovereign wealth funds and institutional capital with European luxury exposure, the episode offers a useful read on risk posture.

First, it underscores that not all EU trade assets face equal exposure to Chinese retaliation. French-branded exports—particularly in sectors with cultural cachet and consumption stickiness—appear to retain an implicit diplomatic buffer.

Second, this targeted exemption suggests that capital flow modeling should distinguish between headline EU risk and sub-national economic realities. German automotive exporters, for instance, face far less margin for maneuver under the same geopolitical spotlight.

Third, it introduces a behavioral signal into sovereign allocator strategy: China is prioritizing continuity over escalation in areas that serve its soft-power and consumption narratives. Luxury brandy—consumed domestically and gifted symbolically—falls into this category.

With the next EU-China leaders’ summit scheduled for later this year, this tariff exemption deal may be better read as pre-summit stagecraft than a permanent structural shift. Both Beijing and Paris had incentive to downplay tensions and manufacture space for negotiation.

Yet the mechanism—bilateral pricing deals in lieu of formal retaliation—may reflect a broader Chinese approach to navigating de-risking pressures. As Western governments impose industrial policy barriers, Beijing appears more interested in calibrated exemptions and symbolic appeasement than all-out decoupling.

It is worth noting that France’s broader tone on China policy has remained steady, if not overtly conciliatory. President Macron’s earlier remarks on European “strategic autonomy” align with this maneuver: remain firm with Brussels, but flexible in bilateral corridors.

For allocators modeling geopolitical risk in capital flows, the China brandy tariff exemption should inform three posture adjustments:

1. Distinguish between bloc-level and state-level risk: Not all EU member states will be treated equally. France may continue to benefit from a bilateral lane of privilege, particularly in sectors with symbolic or consumer resonance.
2. Interpret tariffs as tools of modulation, not default hostility: Beijing is signaling that even under pressure, it will tailor responses to avoid outright escalation—particularly where it can extract economic or reputational leverage.
3. Model exemptions as part of political signaling infrastructure: Institutional actors should not view carve-outs as anomalies. They are increasingly part of China’s trade toolkit, allowing policymakers to flex enforcement without triggering reciprocal policy risk.

This isn’t a climbdown. It’s a recalibration. China’s brandy tariff exemptions show that trade conflict need not unfold as zero-sum posturing. Strategic partners can be insulated—if they play by pricing rules. France’s exemption sets a precedent: loyalty to Brussels can be fluid when national economic interests are finely targeted.

For capital allocators, this is a signal worth watching. The message is quiet but clear: in Beijing’s eyes, fragmentation within the EU isn’t just possible—it’s useful. And for sovereign funds exposed to European trade portfolios, the real takeaway may be this:

When China turns up the heat, it’s not always to burn. Sometimes, it’s to distill.